Correlation Between Arch Capital and PennantPark Investment

Can any of the company-specific risk be diversified away by investing in both Arch Capital and PennantPark Investment at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Arch Capital and PennantPark Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Arch Capital Group and PennantPark Investment, you can compare the effects of market volatilities on Arch Capital and PennantPark Investment and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Arch Capital with a short position of PennantPark Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arch Capital and PennantPark Investment.

Diversification Opportunities for Arch Capital and PennantPark Investment

0.12

Correlation Coefficient

Arch Capital  PennantPark Investment

Average diversification

The 3 months correlation between Arch and PennantPark is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Arch Capital Group and PennantPark Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennantPark Investment and Arch Capital is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Arch Capital Group are associated (or correlated) with PennantPark Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PennantPark Investment has no effect on the direction of Arch Capital i.e., Arch Capital and PennantPark Investment go up and down completely randomly.

Pair Corralation between Arch Capital and PennantPark Investment

Assuming the 90 days horizon Arch Capital Group is expected to under-perform the PennantPark Investment. In addition to that, Arch Capital is 1.04 times more volatile than PennantPark Investment. It trades about -0.09 of its total potential returns per unit of risk. PennantPark Investment is currently generating about 0.13 per unit of volatility. If you would invest  608.00  in PennantPark Investment on October 10, 2024 and sell it today you would earn a total of  93.00  from holding PennantPark Investment or generate 15.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Arch Capital Group  vs.  PennantPark Investment

Arch Capital Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arch Capital Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

PennantPark Investment

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PennantPark Investment are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PennantPark Investment reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arch Capital and PennantPark Investment

The main advantage of trading using opposite Arch Capital and PennantPark Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arch Capital position performs unexpectedly, PennantPark Investment can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in PennantPark Investment will offset losses from the drop in PennantPark Investment's long position.

The idea behind Arch Capital Group and PennantPark Investment pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Technical Analysis module to check basic technical indicators and analysis based on most latest market data.